Once upon a time, two great houses stood dominant in the vast and ever-evolving realm of technology, each wielding significant power and influence. In the north, the stoic and venerable House of Service was renowned across the lands for its large and disciplined army of consulting soldiers. These skilled warriors were masters of adaptation, known far and wide for their prowess in aiding other large kingdoms in managing and fortifying their technological infrastructures.
For centuries, the House of Service has been the one making other kingdoms work, creating tailored strategies, customised code, and integrated solutions forged by the other great kingdom of the technology realm, the House of Product.
To the south, the House of Product was famed for its ingenious artisans and visionary architects. They did not venture from castle to castle, offering tailored solutions. Instead, they focused on forging powerful artefacts—standardised, scalable products. These versatile and powerful artefacts were designed for one kingdom and all.
The House of Product, with its scalable, higher-margin artefacts, always favoured investments from the secretive guild of Venture Capital Financiers. Sharp as hawks, their eyes were perennially set on the horizon, seeking opportunities to yield bountiful returns. In their quest for economic dominion, they found a natural ally in the House of Product. Many knights would receive the Venture Capital blessings, but few would eventually become kings. And those who did made the guild of financiers even richer.
This is how the world worked. In the north, members of the House of Service would try, and often fail, to build products. In the south, members of the House of Product who would sell services to finance the creation of their product would often get outcasted to the north. The two houses worked together in other kingdoms, each in their corner. Until the age of AI came.
Productised Services
Ever since I started working in the technology industry, I’ve always heard that service businesses don’t know how to build and sell products and that product companies can’t scale when they offer customised versions or sell services. But this story isn’t true. More and more service companies are adopting a “productised services” approach. These companies realise that there are always some repeatable customer needs and build standardised products to cater for them. These products often leverage a micro-service architecture to ensure seamless integration with existing products and are sometimes based on open-source projects. Other companies leverage completely transparent products to automate, streamline or optimise back-office operations.
These productised offerings provide numerous benefits for the companies creating them and their clients. By turning services into standardised products, these companies can achieve better margins due to scalability. Unlike bespoke services, which often require significant customisation and manual effort for each client, productised services can be developed once and deployed repeatedly. This scalability not only improves profitability but also allows these companies to reach a broader market with a consistent quality of service.
The Impact of AI
With the ascent of AI, having a product-first approach for service businesses will become a requirement. Instead of selling legions of “human agents” to build and run the IT infrastructure of their clients, service companies will create offerings with both human and AI agents. These agents will perform audits, craft strategies, write specifications, generate code, monitor systems, answer user questions, etc. I’m using the future tense, but all of these use cases are already possible. And AI agents are essentially products.
Integrating AI into service offerings represents a fundamental shift in how these companies deliver value. It's a transition from a labour-intensive model to a technology-driven one, where a customer's long-term value won’t come from the length of the IT project but from the ability to keep improving a system and creating new value.
Service as a Software
I’m convinced that tomorrow’s service companies should concentrate energy on building products in the form of service agents—software tools and platforms that automate and enhance traditional services.
However, transitioning from a pure service model to developing and offering service agents is challenging. It requires a significant shift in mindset, skill sets, and operational models. This is where acquiring product companies could become more and more strategic. By acquiring companies with a product-first approach, service companies can rapidly acquire the necessary expertise, technology, and product-oriented culture. These acquisitions can provide a shortcut to developing robust product capabilities, from software development to product management and customer support.
Acquiring product companies also brings a fresh perspective and injects a product-centric ethos into the service company’s DNA. It exposes the organisation to different business models and operational efficiencies inherent in product companies. This exposure is invaluable in guiding the service company through its transformation journey – from understanding product lifecycle management to mastering the nuances of product marketing and sales.
In essence, for service companies, embracing the 'Service as a Product' philosophy is not just about diversifying their offerings but fundamentally transforming their business model. It's a strategic move that acknowledges the changing market dynamics and positions these companies to leverage the full potential of their expertise in a new, scalable, and efficient way. Acquiring product companies is a crucial catalyst in this transformation, equipping service companies with the tools, talent, and mindset needed to thrive in this new era.